Union Budget 2015: Steps to curb Black Money

  • by Gaurav Bansal

The Union Budget 2015 introduced various measures to curb the circulation of black money and bring more and more income into the tax purview; particularly it has included most of the suggestions of the SIT (special investigation team) have been considered. Following can be considered as the most important takeaways from the budget regarding the new law on black money and other proposed measures.

Features of the new Law on Black Money

(1) Concealment of income and assets and evasion of tax in relation to foreign assets will now be prosecutable with punishment of rigorous imprisonment up to 10 years. Further,

  • this offense will be made non-compoundable;
  • i.e., the offenders will not be permitted to approach the Settlement Commission; and
  • penalty for such concealment of income and assets at the rate of 300% of tax shall be levied.

(2) Non filing of return or filing of return with inadequate disclosure of foreign assets will be liable for prosecution with punishment of rigorous imprisonment up to 7 years.

(3) Income in relation to any undisclosed foreign asset or undisclosed income from any foreign asset will be taxable at the maximum marginal rate. Exemptions or deductions which may otherwise be applicable in such cases shall not be allowed.

(4) Beneficial owner or beneficiary of foreign assets will be mandatorily required to file return, even if there is no taxable income.

(5) Abettors of the above offenses, whether individuals, entities, banks or financial institutions will be liable for prosecution and penalty.

(6) Date of Opening of foreign account would be necessarily required to be specified by the assessee in the return of income.

(7) The offense of concealment of income or evasion of tax in relation to a foreign asset will be made a predicate offense under the Prevention of Money-laundering Act, 2002 (PMLA). This provision would enable the enforcement agencies to attach and confiscate unaccounted assets held abroad and launch prosecution against persons indulging in laundering of black money.

(8) The definition of ‘proceeds of crime’ under PMLA is being amended to enable attachment and confiscation of equivalent asset in India where the asset located abroad cannot be forfeited.

(9) The Foreign Exchange Management Act, 1999 (FEMA) is also being amended to the effect that if any foreign exchange, foreign security or any immovable property situated outside India is held in contravention of the provisions of this Act, then action may be taken for seizure and eventual confiscation of assets of equivalent value situated in India. These contraventions are also being made liable for levy of penalty and prosecution with punishment of imprisonment up to five years.

Regarding curbing the domestic black money, a new and more comprehensive Benami Transactions (Prohibition) Bill is likely to be introduced in the current session of the Parliament. The upcoming law will enable confiscation of benami property and provide for prosecution, thus blocking a major avenue for generation and holding of black money in the form of benami property, especially in real estate.

A few other measures are also proposed in the Budget for curbing black money within the country. The Finance Bill includes a proposal to amend the Income-tax Act to prohibit acceptance or payment of an advance of INR 20,000 or more in cash for purchase of immovable property.

Quoting of PAN is being made mandatory for any purchase or sale exceeding the value of INR 1 Lakh. The third party reporting entities would be required to furnish information about foreign currency sales and cross border transactions. Provision is also being made to tackle splitting of reportable transactions. To improve enforcement, CBDT and CBEC will leverage technology and have access to information in each other’s database.

Appendix: Concept of Black Money

Black Money by definition is the unaccounted income, or income out of national income purview. It can be accumulated through legal and illegal means, thus sometimes it is accumulated either because of intention of tax evasion, and sometimes because the source of income cannot be revealed. Examples can vary from; income earned through extra work, which can’t be declared, for example, a government school teacher earning more money through private tuition or income earned through corrupt practices. Similarly, it can also be a result of income which can be declared, for example, business income, but the businessman doesn’t want to pay the tax on entire income and save money. All such aberrations in reporting to earned income to tax authorities’ accounts to increase in circulation of black money.

It is also called parallel economy, because it works around the same principles and complexities as the accounted economy, but runs parallel to it unaccounted.

Problems of Black Money

Black money in simple terms almost always goes into criminal activities or unethical business practices as it can’t be utilized into legal activities as the source of money can’t be declared. Thus, once an income is out of tax purview, it further breeds black money. Similarly it also feeds criminals, money launderers, and anti national elements. Another sector which is most severely affected by black money is real estate, and it was black money laundering into real estate which made properties so expensive. This is a serious issue as it not only makes housing unaffordable for common people, it also makes the process of starting new business very expensive and thus, hurts growth, innovation, and entrepreneurship.

(Second in three Article Series on Budget)

Gaurav Bansal